Pound suffers as Bank of England governor rules out extension to bond-buying aid for pension funds
The Bank of England’s governor has ruled out extending its bond-buying support for pension funds beyond Friday’s deadline, prompting a dramatic fall in the value of the pound.
Andrew Bailey told an event in Washington that funds had “three days left… to get this done” after a series of interventions to support the “dysfunctional” market in the wake of the wider meltdown over the government’s mini-budget.
The latest action, on Tuesday, saw the Bank snap up index-linked gilts, government bonds with interest payments in line with inflation.
They are heavily used by pension funds.
The Bank had already been buying up long-dated gilts – a type of government bond that make up a large proportion of pension pots – to steady market jitters.
They saw yields – the rate demanded to hold government debt – shoot up as pension schemes tried to raise hundreds of billions through firesales of government and corporate bonds to meet cash calls – the latest coming from providers of so-called liability-driven investment strategies.
They are demanding funds put up more money to support new and older hedging positions.
Mr Bailey told an event organised by the Institute of International Finance that the intervention must be temporary.
Please use Chrome browser for a more accessible video player
Are we set for another era of austerity?
“We have announced that we will be out by the end of this week. We think the rebalancing must be done.
“And my message to the funds involved and all the firms involved managing those funds: You’ve got three days left now. You’ve got to get this done.”
Industry body the Pensions and Lifetime Savings Association had earlier urged the Bank to extend the bond-buying programme until 31 October – the new date for the publication of the government’s debt plan – at least.
Mr Bailey’s clear stance on the issue saw the pound, which had been trading higher on the day versus the dollar earlier, sink by more than one and a half cents to below $1.10.
On Monday the Bank announced a potential doubling of the amount it was willing to spend every day on long-dated gilts.
Gilt yields, the interest rate payable on government bonds, rose on Monday, near the 5% highs of 27 September, the day before the Bank made its first intervention.
They fell when news of the latest operation was announced but long-dated yields later rose higher again.
That took place when the Bank revealed it had bought £1.947bn of index-linked bonds on Tuesday, adding that it had rejected £466.9m of offers to sell to the central bank.
It also bought up £1.363bn in long-dated bonds – also well below the £5bn possible.
The yield on 30-year bonds rose back to 4.8% for a short time, having been down at 4.4% around lunchtime.
The benchmark 10-year yield remained around the 4.4% level.
“Things seemed calmer again today,” Mr Bailey told the event.
“We will see,” he added.
The Bank announced on 28 September a temporary and emergency buying programme of long-dated gilts that are to be repaid in 20 to 30 years time, in the wake of chancellor Kwasi Kwarteng’s mini-budget announcement.
Read more:
What are bonds, how are they different to gilts and where do they fit in the mini-budget crisis?
Bond buying period due to end on Friday
Market turmoil that stemmed from the mini-budget led to the unprecedented intervention from the regulator to prevent part of the pension market collapsing as the cost of interest on gilts surged.
Russ Mould, investment director at AJ Bell, said of the scheme’s expansion before Mr Bailey’s remarks: “The Bank of England hopes to avoid a crisis in the market by being a willing buyer of bonds from pension funds who are under pressure.
“These pension funds will welcome today’s move, but whether the broader market shares the same enthusiasm remains to be seen.
“The key sticking point is that the support measures are only scheduled to last until Friday.
“Will that be long enough, or will the Bank of England extend the support scheme? Extending it could go one of two ways – the market either applauds the move and breathes a sigh of relief or it gets even more worried, thinking that the extra time suggests the crisis is more severe than originally thought.”
A trio of property giants has lodged a protest against a radical financial restructuring that will see Cineworld imposing steep rent cuts on its landlords.
Sky News has learnt that British Land, Landsec and Legal & General Investment Management all voted against the cinema operator’s restructuring plan this week.
Cineworld has confirmed plans to close six of its UK multiplexes, but documents circulated to creditors show almost 50 others are in categories requiring landlords to agree to revised rent deals in order to ensure their long-term viability.
Although they carry significant influence in the commercial property sector, the trio’s protest will have no impact on the outcome of the company’s proposals, since its owners are now also among its largest creditors, meaning they can effectively force the deal through.
According to documents sent to creditors during the summer, 33 sites – categorised as Class B – “require a reduction of rent to ERV [Estimated Rental Value] Rent in order to place the sites on a viable long-term footing”.
A further 38 of Cineworld’s cinemas would be unaffected, while another 16 Class C1 and C2 leases require reductions to either turnover rent or zero rent in order to render them financially viable.
The documents added that the company did not have sufficient funding to meet a quarterly rent bill on June 24 of £15.9m.
“The UK group did not have sufficient liquidity to make the June 2024 Rent Payment and required further funding from the US Group to meet this liquidity need.
“Absent this funding, the UK Group would have been insolvent on a cashflow basis.”
Cineworld is being advised by AlixPartners.
Keep up with all the latest news from the UK and around the world by following Sky News
Other cinema operators are now poised to step in to take over some of Cineworld’s sites.
The company trades from more than 100 locations in Britain, including at the Picturehouse chain, and employs thousands of people.
Cineworld grew under the leadership of the Greidinger family into a global giant of the industry, acquiring chains including Regal in the US in 2018 and the British company of the same name four years earlier.
Its multibillion-dollar debt mountain led it into crisis, though, and forced the company into Chapter 11 bankruptcy protection in 2022.
It delisted from the London Stock Exchange last August, having seen its share price collapse amid fears for its survival.
Cineworld also operates in central and Eastern Europe, Israel and the US.
A long-running measure of consumer confidence has slumped to levels last seen at the start of the year following warnings of “tough choices” ahead in the looming budget.
GfK’s Consumer Confidence Index fell seven points in September to minus 20, with significant drops in predictions for personal finances and the general economy over the coming year.
The report’s authors suggested it was “not encouraging news” for the new government, which has made growing the economy its top priority.
Money latest: Millions already buying mince pies ahead of Christmas
But within weeks of taking the post of chancellor, Rachel Reeves – followed by prime minister Sir Keir Starmer – moved to warn of a legacy £22bn “black hole” in the public finances and said it would result in a painful budget on 30 October.
Among measures already taken include cuts to winter fuel payments, leaving up to 10 million pensioners up to £300 worse off, and inflation-busting public sector pay settlements.
Tax rises and spending cuts are widely expected in next month’s statement to MPs though The Times reported on Friday that a decision by the Bank of England to slow a programme of loss-making bond sales would leave Ms Reeves £10bn better off than she had anticipated.
It added that she was still expected to push forward with her budget plans anyway as a signal of her commitment to fiscal discipline.
Please use Chrome browser for a more accessible video player
Chancellor: ‘One budget not enough’
The latest snapshot on the public finances, released by the Office for National Statistics (ONS) on Friday showed net borrowing of £13.7bn during August.
Its chief economist, Grant Fitzner, said: “Borrowing was up by over £3bn last month on 2023’s figure, and was the third highest August borrowing on record.
“Central government tax receipts grew strongly, but this was outweighed by higher expenditure, largely driven by benefits uprating and higher spending on public services due to increased running costs and pay.”
Consumer spending accounts for around 60% of the UK economy.
Keep up with all the latest news from the UK and around the world by following Sky News
Data released separately on Friday showed a 1% rise in retail sales volumes during August in the wake of weakness, mostly blamed on poor weather, over the previous couple of months.
The ONS said that the increase was driven by supermarket sales, as demand for BBQ food and drinks rose due to the arrival of some sunshine over the key holiday month.
Please use Chrome browser for a more accessible video player
UK economy flatlines again
It also credited discounting by clothing retailers.
The data chimes with the latest updates from big retailers, including Next and B&Q’s owner, which have spoken of weak demand for so-called big ticket items such as home furnishings and kitchens respectively.
GfK’s closely-watched survey showed expectations for the general economy over the next 12 months fell by 12 points to -27, while the forecast for personal finances was down nine points to -3.
Read more:
Winter fuel payments – are you still eligible?
Which tax rises could Labour introduce at the budget?
Commenting on its key measures, including the headline figure, consumer insights director at GfK Neil Bellamy said: “These three measures are key forward-looking indicators so despite stable inflation and the prospect of further cuts in the base interest rate, this is not encouraging news for the UK’s new government.”
He added: “Strong consumer confidence matters because it underpins economic growth and is a significant driver of shoppers’ willingness to spend.
“Following the withdrawal of the winter fuel payments, and clear warnings of further difficult decisions to come on tax, spending and welfare, consumers are nervously awaiting the budget decisions on October 30.”
-
Sports2 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports6 months agoStory injured on diving stop, exits Red Sox game
-
Sports1 year agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports11 months agoGame 1 of WS least-watched in recorded history
-
Environment1 year agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Sports3 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Environment1 year agoTesla advances Powerwall pilot project with German electric company